Explore our work by: Country


COVID-19 in Kenya: Recovering from the economic crisis

Adam Smith International’s Principal Manager in Africa, Suvojit Chattopadhyay, talks about the impact COVID-19 is having on Kenya and how the country could prevent an economic crisis. 

Kenya Covid-19 Response

The rapid spread of the COVID-19 has paralysed societies worldwide. With 179 confirmed cases (as of April 9), densely populated informal settlements in urban centres such as Nairobi and Mombasa, combined with a public healthcare system that is already under pressure, Kenya might be staring at a looming disaster.

Kenya’s budget for 2019–20 announced an emphasis on the Big Four sectors — Agriculture, Manufacturing, Construction, and Healthcare. The COVID-19 crisis puts Kenya’s ambition in every single one of those sectors at risk. A McKinsey & Company analysis estimates that Kenya’s GDP could shrink by 5% if the worst-case scenarios of the spread of COVID-19 are realised. The value of the loss ranges from $3 to 10 billion, driven largely by the fall in domestic consumption demand.

The government’s response has been measured. In an effort to contain infection clusters, Kenya has announced a nation-wide curfew from 7 pm to 5 am, shut all eateries and bars in the Nairobi metropolitan area, and Kilifi, Kwale and Mombasa counties and also prohibited any travel between counties. Government advisories have strongly discouraged gatherings of all forms — social and religious. Essential services continue to operate, and the economy continues to function albeit at much-curtailed levels. A complete lockdown would have brought all economic activity to a standstill, and that seems to be something Kenya can ill-afford at this stage.

Despite this, the current slowdown hurts. While everyone acknowledges the need to adopt self-quarantine and social distancing measures at such a time, it is plainly obvious that the brunt of these measures fall on the poor and the most vulnerable. The informal sector employs 84% of Kenya’s labour force. These are workers who have no stable income, are not covered by formal safety nets such as pensions, or any form of wage protection. The onus lies with the government to reach out to this group, through a sensible combination of ‘social distancing’ measures and additional fiscal measures that provide them immediate comfort and security.

Kenya announced an additional $100 million for cash transfers to vulnerable groups across the country. The proposed enhancements to cash transfers addresses an immediate priority — putting money in the hands of families to cushion the impact of a drastic fall in domestic consumption. The government has also announced an income tax waiver for low-income earners (taxpayers in the lowest income segment, with monthly earnings of up to $240). These measures are aimed not only at spurring demand for goods and services, but also has a significant effect in buoying public sentiments.

The government has also announced a reduction in the corporate income tax rate from 30% to 25%. Kenya also announced that it would clear $130 million worth of pending bills, which will go a long way in improving liquidity in local businesses. Fiscal measures announced by the government is expected to cost Kenya about $700 million in tax revenue, and will no doubt worsen the already large budget deficit that stands at 5.6%.

Recognising that even a ‘flattened’ COVID-19 transmissions curve may have a long tail, and potential spikes (or a second wave, as many fear), more needs to be done and these steps will inevitably demand a larger fiscal outlay. Ideas for key government priorities below:

  1. Test more: ‘Testing and isolating’ is the method that worked for richer countries such as South Korea and Singapore. While the upfront investment required for mass testing may be prohibitive, Kenya needs to start testing more aggressively, and this is an area where it can rightfully call on the international community for greater support. Although, Kenya did just have a testing breakthrough moment when the Kenya Medical Research Institute (KEMRI) announced it had started manufacturing Covid-19 rapid test kits to ease the testing burden at State facilities. In the medium-term, the government will need to turn its attention to the state of public healthcare in Kenya — this crisis presents the perfect opportunity for the country to review the state of its devolved health sector.
  2. Keep the economy going: Kenya has a median age of 20 and 93% of its population are younger than 55. A country with these demographics simply cannot afford a total lockdown, and may even have reason to believe that its tactics in confronting COVID-19 can be different from other societies with aging populations. In partnership with major industry players, the government should carry out a sectoral analysis to identify those that can be sustained even if they were to run at reduced levels of activity. Keeping supply chains of essential commodities and supplies will be vital here. This is the time to maximise the potential of innovative digital technology to make supply chains smarter and effective in last-mile distribution — reaching pockets of need.
  3. Further expand the social safety nets: A prolonged fall in domestic consumption demand can tank the economy. Fiscal measures introduced by the government will play a role in supporting poor families across the country. The income shock to families can very easily turn into a crisis of malnutrition across the country, especially at a time when the regular healthcare infrastructure is already under stress. Kenya’s National Safety Net Programme (NSNP) covers nearly a million families, and this is the time to deliver cash assistance to those enrolled, as well as to rapidly expand coverage. The proven and trusted existing infrastructure also means that this would be an excellent mechanism to channel substantial amounts of additional international assistance.
  4. A long-term recovery programme: The recovery from the crippling economic slowdown could take up to two years. In this time, income inequalities will get exacerbated and public expenditure will come under tremendous pressure. The World Bank Group has announced a $160 billion package to support developing countries in health systems strengthening and economic recovery over the next 15 months. Other major bilateral donors, especially China, will soon step up to announce their own assistance packages. In order to take advantage of these opportunities, Kenya needs to develop a sure-footed domestic economic recovery plan driven by public expenditure.

The COVID-19 crisis will test the resilience of our globalised world. As a pandemic in this era, the virus, as well as the related anxieties and the unhelpful misinformation surrounding it, are destined to spread further than in previous such instances. Fighting this pandemic is that much harder for it. Countries like Kenya, that are the nerve-centre of an entire region’s economic prospects, have a very important role to play.

Suvojit Chattopadhyay
Principal Manager, Africa

Our Work

Explore our work to transform lives by making economies stronger, societies more stable, and governments more effective.